Many people may not realize, however, that since September 1, 2006 residents of certain areas of Chicago, Illinois are required to have credit counseling before they are allowed to purchase a house. The law, called the Illinois Predatory Lending Database, is intended to curb predatory lending by educating borrowers before they enter into a mortgage agreement.

Before buying a home, credit counseling must be obtained from federal Department of Housing and Urban Development-certified counselors for people looking to buy homes in 10 Chicago ZIP codes who have low credit scores or whose income meets other criteria. The law only applies in certain zip codes that the state says have a high proportion of “predatory loans” and higher than average foreclosure rates.

Since most would agree that credit education is sorely lacking in North America, it could be argued that everyone should be forced to attend credit counseling sessions. However, a lawsuit is now underway, arguing that this law unfairly targets minorities. You can read more about it in today’s edition of the Chicago Tribune.

— Through the first 11 months of the new law, NFCC members delivered 563,494 bankruptcy counseling and education sessions and issued 630,422 certificates.

— Consumers filing for bankruptcy were “upside-down” financially, with average unsecured debt being $11,599 greater than average annual income and the unsecured debt to income ratio has deteriorated since the April NFCC report.

— Mortgage delinquency was more prevalent for consumers filing for bankruptcy than for those receiving non-bankruptcy counseling.

— Phone and Internet counseling continue to be the predominant choice for services.

The full press release can be read here. Clearly the cost of providing the mandatory credit counseling is more expensive than originally anticipated, so further changes to the rules are possible. Stay tuned to this credit counseling Blog for updates as they become available.

This is a very common question, because a credit counseling Debt Management Program may appear to be very similar to debt consolidation. In both cases you have more debt than you can handle, so you enter into a program where you make a monthly payment to repay your debts.

In debt consolidation, you get a loan to repay all of your debts. You now have one monthly payment.

f you enter into a Debt Management Plan, your credit counselor works out payment arrangements with your creditors, and you make one monthly payment to your credit counselor, who then distributes the money to your creditors.

In both cases you make one monthly payment to deal with your debts. There are however two significant differences.

First, you must qualify for a debt consolidation loan based on your income and your credit. You may be required to provide outside security, such as a car or a house, to get the loan. The debt consolidator then lends you the money to repay your debts. With credit counseling there is no credit qualification; it is up to the creditors to accept or reject your plan. You do not need to provide any outside security.

The other significant difference is that you will be paying interest on your debt consolidation loan at the going rate, which may be very high if you have less than perfect credit. With credit counseling, you are paying a reduced interest rate. In many cases there is no interest if you make your payments as agreed.

If you have more debt than you can handle, investigate both debt consolidation loans and credit counseling, and then decide which option is best for you.

There are two types of credit counseling service: for profit, and not for profit.A for profit service exists to make a profit. This does not mean they are bad, but it does mean that their primary objective is to make a profit.

They exist to provide a service to you, and to get you back on track financially. In many cases a non-profit credit counseling agency will spend more time with you, and they will emphasize budgeting and personal money management. They will take the time to teach you the skills necessary to help you avoid financial problems in the future, which of course is the reason for going to credit counseling in the first place.

As with all service providers, meet with person who will be working on your case, and decide for yourself if the person you are working with can help you achieve your goals.

First, talk to your friends and family members to see if they have any personal experience with a credit counselor. Word-of-mouth referrals are the best kind, so if you can find one that your friends were satisfied with, they will probably also do a good job for you and your family.

You must complete your credit counseling session, and have a certificate proving that you have completed your credit counseling session, or else the court will dismiss your bankruptcy case, and you will not receive protection from your creditors.

This credit counseling session must be completed by an approved credit counselor. If you are considering filing bankruptcy, either under Chapter 7 or Chapter 13, we suggest you contact a qualified bankruptcy attorney or credit counselor to explain to you the process in detail, so that you meet all of the requirements and understand all of your obligations before you go to court.

Personal bankruptcy may be an option for you, but there are a number of disadvantages to personal bankruptcy.

First, no-one wants to go bankrupt. Second, with a bankruptcy on your credit report it may be more difficult to borrow in the future. Third, there are costs associated with bankruptcy, including legal fees.

For those reasons, many people use credit counseling as a way to avoid bankruptcy. People go bankrupt to stop their creditors from calling, and to prevent legal action. Credit counseling can accomplish the same objective.

Your credit counselor will put you on a Debt Management Program where you make one payment each month to deal with your debts. Once the payment plan is in place, your creditors are no longer calling or threatening you, so credit counseling becomes a great strategy to avoid bankruptcy.

It is a sad but true reality: we do not do a good job of educating students about money, debt and credit. We teach them how to spend, but we don’t teach them how to use credit wisely.For that reason, credit counseling, particularly learning to budget, is a great skill for students to learn. In fact, many non profit credit counseling organizations run seminars for students at local high schools, colleges and universities to help them learn how to budget.If you have a student in your family, encourage them to learn money management skills while they are still young!